You may have read about the Roth 401(k) being in effect January 1st, 2006. The Online 401(k) now offers the Roth 401(k) feature to its small business clients free of charge.
The Roth 401(k) feature does not necessarily meet every small business need, so we recommend you consult with us first before recommending this option to your clients.
What is the Roth 401(k)?
As its name suggests, the Roth 401(k) combines features of the traditional 401(k) with those of the Roth IRA. It will be offered by employers as part of a regular 401(k) plan, but similar to a Roth IRA, contributions will be made with after-tax dollars.
While your client won't get an upfront tax-deduction, the account will grow tax-free. Withdrawals taken during retirement will not be subject to income tax, provided he or she is at least 59½ and has held the account for five years or more.
How much can someone save in a Roth 401(k)?
Roth 401(k) accounts follow the same contribution limits of regular 401(k)s – $16,500 for 2009, or $22,000 for those 50 or older by the end of the year – allowing individuals to sock away thousands of dollars more in tax-free retirement income than they would through a Roth IRA. (In 2009, Roth IRA contributions are limited to $5,000 a year, or $6,000 for those 50 or older.)
Who is a Roth 401(k) good for?
The Roth 401(k) is great for high-income individuals who haven't been able to contribute to a Roth IRA because of the income restrictions. (Eligibility phases out between $95,000 and $110,000 for single filers and $150,000 to $160,000 for those who are married and file jointly). There are no income stipulations for Roth 401(k)s.
Use our Roth calculator to see if it is right for your client
We also have a helpful one-pager you can use to assess if Roth is right for your client:
 To Roth or not to Roth |
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